How we adapt to digital disruption

Netflix, AirBnb, Uber, Mp3s, WhatsApp, and Tripadvisor are all examples of digital disruption. Digital disruption changes and challenges established ways of doing business, social interacting and, even more fundamentally, how we think.

Kai Riemer , Professor of Information Technology and Organisation in the University of Sydney’s Business School joins Chris Neff to explore digital disruption’s impact on all our lives.

Here is Professor Kai Riemer’s introduction to digital disruption:

What is digital disruption?

Disruptive innovation is revolutionary, not just evolutionary. It is path-breaking - challenging the background on which the industry is currently understood.

You don’t get to decide to be a disruptor, disruptions happen. They are a social phenomenon, usually a collective phenomenon.

When they happen they bring about a tectonic shift in our understanding of what counts as a valid product, which can catapult the disruptor from the fringe to the core and the established player to the margins in a very short period of time.

Why you missed it

Because the disruption typically doesn’t make sense initially; a company or sector can’t see the disruptive potential in emerging ideas.

First, there is the fear of self-cannibalising what is still a profitable business in favour of a new way of doing business that is not yet proven to work.

Second, structures are built on the old way of doing business, the risk of which is that people will not be inclined to get involved with something that doesn’t support how they are judged and rewarded for doing their job well.

Finally, a company’s budget processes are based on a rigorous cost-benefit analysis but benefits are fundamentally unknowable when it comes to disruptive change.

Avoiding risk prevents you innovating internally.

Kodak had all the technology and patents to be a leader in digital photography but did not pull it off for those reasons.

Artificial Intelligence and algorithms don’t do disruption

Dealing with disruptions is not something that technology or Artificial Intelligence (AI) are good at because AI always has to be trained with data from the past and when those disruptive shifts happen that data’s basically invalidated. And so it’s humans who bring about and create the world and can cope with making sense of how change happens.

Algorithms don’t live our lives. All they can sense is the data that we feed them but they don’t have the same understanding that we as humans have, they are merely working with patterns that they elicit from existing data of how the world works today. Once the world changes those algorithms are often pretty much lost.

When what counts as a fact changes, any attempt to build a prediction on the known facts of today will fail. All data collection, even big data, involves some data selection and interpretations which are always based on these notions of self-evident fact.

So we need to be really strong on the human side of the human technology equation because there’s a lot of people who are working on the technologies and unless you really want to become a programmer or a coder or a techy, you’re better off understanding how technologies change the world rather than dabble in technology itself.

Hear Kai speak about Artificial Intelligence and the Future of Work at Raise the Bar.

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Chris Neff: Digital disruptions change and challenge how we do business, how we socialise and even more fundamentally how we think. Kai Riemer is a Professor of Information Technology and Organisation and is the leader of the Digital Disruption Research Group.

Kai’s research interests include disruptive technologies, virtual work and the philosophy of technology. Thank you so much for joining us on Open for Discussion Professor Kai Riemer.

Professor Kai Riemer: Yeah, thanks for having me.

Chris Neff: Can I start with the big question which is what are digital disruptions?

Professor Kai Riemer: It’s a good question. Lately we’ve been seeing a lot of those disruptions brought about by digital technology such as smartphones, apps on the back of new business models such as Uber, Airbnb and the likes. And the example that I often use is a more innocent one which is the mp3.

It came off the back of year-long research into how we as humans perceive sound and so mp3 was a revolutionary compression algorithm that allowed a digital file to be much smaller because it could just cut out all the bits that we can’t hear. So that was research.

People then turned this into a product. They released a little tool on the internet that people could use to turn their own music into mp3 files. On the back of that they started sharing some mp3 files. Some kids in the US in a dorm room, they invented a little software they called Napster.

Chris Neff: Mmm.

Professor Kai Riemer: And that then took off and people started sharing mp3 and that was quite significant because it allowed [us] to do something with music that was never possible before at that scale. And then once this became a phenomenon, people started building new devices for it, mp3 players and then later the iPod and then it changed over time how we relate to music more profoundly. So, today the idea that you would go and have to buy music and own music and take it home and put it on the shelf, is just unthinkable.

Now for the music industry, what they could see is someone is stealing music. In the beginning, it was not significant to them anyway. It became significant once it engaged a larger number of people. So, that disruption happened slowly but it was very profound...

Chris Neff: Mmm hmm.

Professor Kai Riemer: ...and so that makes it disruptive because our whole relationship with music has changed. This is one of those societal disruptions that have changed entire industries to their core. But the phenomenon is that when those disruptions are in the early stages, it’s not obvious where they’re going and there’s any number of technologies and any number of time that might become disruptive. This makes it so hard to actually predict the next disruption.

Chris Neff: To what degree are we talking about disruptions’ Like...are these significant disruptions that fundamentally change the way we behave or are there smaller disruptions that we may or may not notice?

Professor Kai Riemer: Ok so, disruption to me is always significant. Unfortunately, a lot of what people are calling disruptions these days might not actually be disruptive. So, disruption has become this word that has become a stand in for being a start-up or an innovator, we want to disrupt this and that. This is often more wishful thinking than anything else. You don’t get to decide to be a disruptor, disruptions happen. They are a social phenomenon, usually a collective phenomenon. So, disruptions are much more fundamental and they can never be really engineered or brought about by one innovator or one organisation even.

Chris Neff: So, to a certain extent some of it’s predictable. If you work in the industry I imagine you can see it a little bit more than others but you’ve also mentioned that a lot of this is happening on the fringes and might not appear to be relevant.

Professor Kai Riemer: Yeah let’s unpack this. Now first of all I think when you’re very invested in an industry such as the music industry at the time, Napster is a threat but what is truly disruptive about it is not obvious right? Because for the music industry it was copyright infringement, it was stealing, it was piracy. For people who were doing Napster, it was something very different. It wasn’t about just getting music for free. The experience was wow, you could actually discover music you never knew before. Just by way of, ok I like this music and I find it on the hard disk of a person and that person also has all this music which I’m also interested in.

Nowadays you can do this with iTunes or Amazon because you have all these features that let you discover what other people have bought but at the time that didn’t exist so that was really groundbreaking. So, that was what drew a lot of people to it. Sure, free music is nice but this discovery effect. And that was completely lost in the conversation at the time.

On the back of that then, music became mobile, right? Today we enjoy music everywhere, anytime. You just stream it, you have access to all the music in the world and more importantly you can enjoy music everywhere you want. So, that has really changed and so it was probably more obvious to people who weren’t invested in the industry which is what makes disruption so dangerous because the more you’re heavily invested, the less obvious it is to you what is happening because you are seeing those changes just on your understanding of what the industry is about.

This is why it’s so important to engage with the fringes because those changes that might happen at the fringes, they’re done by people who don’t have that legacy of being part of the current understanding of the industry.

Chris Neff: And they work in the blind spots...isn’t that...I mean being sort of the definition of the fringes is...

Professor Kai Riemer: Mmm.

Chris Neff: ...you know businesses have blind spots that they don’t see and that’s a great place...

Professor Kai Riemer: Right.

Chris Neff: ...for young little innovators to work in these fringes.

Professor Kai Riemer: The problem is that it’s not just because no one is looking there, it’s also because what you see there is not obviously relevant initially, right? And most of what happens at the fringes will never become relevant to the industry so it’s very hard to pick apart you know...the stuff that’s just experimenting and tinkering with technology and the things that might become truly disruptive.

That doesn’t mean that businesses shouldn’t engage with the fringes and shouldn’t find ways of bringing in some of those weird ideas and start experimenting with them themselves. There’s different strategies of how you’d go about this right. Some businesses they just go and buy a start-up and put their idea in a draw. Others try to grow these ideas and be early adopters even though it might impact on their core business. So, that’s a, you know, a case-by-case judgement call I guess.

Chris Neff: Do they hire them? I mean...you can sort of take it over and put it in a draw but if it were me, I mean I would just hire the fringe disruptors, bring them into the business and then see what they can do and be able to control it that way.

Professor Kai Riemer: Yeah. There’s all kinds of different models obviously at the moment. There’s innovation labs and incubators and you know...businesses such as Telstra with muru-D they run their own incubator for start-ups precisely because they want to engage with these ideas early. It’s challenging though because how do you actually make sense of all of this right?

Chris Neff: Mmm hmm.

Professor Kai Riemer: You can grow an idea but how do you then take it into the core business’ And that‘s a really difficult step to make, right’ You might have something on your hands and that’s promising but changing a large corporate organisation is really challenging.

Chris Neff: You mentioned Telstra. Are there...I mean are we driving around and missing digital disruptions that are happening around us’ Are there other things in Australia that we should be paying attention to?

Professor Kai Riemer: I think there’s a lot happening. I think we’re very early adopters with a lot of those technologies in Australia. This is why a lot of companies actually come to Australia to launch certain products first like McDonalds used Australia as their test bed for their automated ordering systems that you now find in the McDonalds outlets.

So, no Australia, I think because we are very tech savvy consumers and also a vibrant technology scene in terms of start-ups, I think we’re doing a lot. But that doesn’t make it easier right because there’s now all these ideas, all these start-ups, all these potential disruptions and I think people are getting a little bit tired of the narrative of disruption because by and large a lot of those ideas never come to fruition. As is the case with most innovations and start-ups.

Chris Neff: So, is disruption good then for workers in the workplace or is it bad? Or is that the wrong question?

Professor Kai Riemer: That’s an interesting question but there’s no one answer. The standard academic answer is, it depends right?

Chris Neff: Mmm hmm.

Professor Kai Riemer: Technology is not neutral. Whether Uber is good or bad for the drivers depends on the view point, right? For some it offers a new possibility to take on casual employment that allows them to do work where they previously couldn’t, for others it threatens their existence because you know...if you are depending on driving and you have to live off driving cars, previously maybe as a taxi driver and now as an Uber driver, you’re taking a big cut and your life isn’t going to get any easier. So, I think it very much depends on the view point.

Chris Neff: Well and the example that you used with McDonalds I think is a good one. You know...there used to be people there and now there’s a kiosk, an electronic kiosk and I punch it in and there might still be one or two people over at the thing but it’s not the busy little hub that it used to be with people taking your orders and...

Professor Kai Riemer: That’s actually not true.

Chris Neff: No?

Professor Kai Riemer: McDonalds had to hire more people under that system because what happens is you can now configure your own burger so the complexity in grilling burgers has blown out significantly. And also with their gourmet selection, they actually serve them at the table. So, you can now order your food and you can sit down and someone comes and offers you this burger on a wooden plate with a nice little basket of fries. So, it has actually led to more employment.

The reason McDonalds is doing it is because they are now competing with a lot of bespoke burger outlets so they have all of a sudden, a market, a gourmet market for burgers that they are competing with. They had to do something, they had to innovate but that’s not an innovation that was driven by rationalisation per se, and you know cutting out employment, actually led to more employment.

Chris Neff: So, there’s a business aspect. You know...it’s really the application of the digital disruption in society that does it so how are digital disruptions changing how we think?

Professor Kai Riemer: I think in the same way that every technology changes the way we think. In the sense that it allows us to do new things that are exciting for a moment and then we very quickly take them for granted. Mobile technology, the ability to just instantly call someone and be in a meeting with people at the other side of the world.

It changes our thinking because we see the world with different eyes, quite literally. And it happens with every kind of technology, every time. It’s just that some of those changes are more profound and more threatening to established business models or ways of going about your daily life or your livelihood.

And so, the more these technologies affect people and their livelihood, the more we have the problems that we call disruption. If you are at the receiving end of disruption...

Chris Neff: ...then you don’t like it.

Professor Kai Riemer: No, it becomes quite existential. It not only challenges your business, your income but also your identity. If you’re very invested in a certain technology that is being made obsolete then that’s quite an existential crisis.

Chris Neff: Do you have a favourite digital disruption? Is there something that you look at and you go ok, this is really cool. It’s changed the way I think or it’s changed the way an industry operates or...

Professor Kai Riemer: What I like is these so called disruptions...where disruption goes wrong. Where technology is being thrown at a problem where there wasn’t a problem. Juicero for example, a $700 juicer that comes with a Wi-Fi connection and a QR reader and you’re being shipped those little bags with fruit pulp and then the machine with a very elaborate mechanism will then squeeze those bags and then at the end you get juice. And it wouldn‘t work when the Wi-Fi is down right’

Chris Neff: (laughs)

Professor Kai Riemer: And so that was supposed to be the next disruptive technology and so I kind of like sort of identifying the technologies where the whole disruption narrative goes astray...

Chris Neff: Mmm hmm.

Professor Kai Riemer: ...where you venture into can I say bullshit on the podcast?

Chris Neff: Well I’m American and we’re the kings of inventing things you don’t need but then discover that you desperately need the thing that you don’t need for about a week and a half. So, I think your point is well taken.

Professor Kai Riemer: Yeah, look I’m German and we tend to overengineer the world.

Chris Neff: Mmm hmm.

Professor Kai Riemer: So, we tend to throw engineering at just about anything so I’m with you.

Chris Neff: Can I ask...so I did a little homework before the podcast and I was looking...there’s a list of digital disruptions and I’m interested in you know...if you had to say three words about each, what would you say?

Professor Kai Riemer: Hoooo ok.

Chris Neff: Ok?

Professor Kai Riemer: That sounds fun.

Chris Neff: Ok. Mobile internet.

Professor Kai Riemer: Already here.

Chris Neff: Driverless cars?

Professor Kai Riemer: Interesting. Probably needs more change
s to the built environment than people would expect so it’s not going to come at a broad scale anytime soon.

Chris Neff: The internet of things?

Professor Kai Riemer: Well that’s your fridge ordering milk. No, but seriously I think there’s a lot to be said for sensors in different devices but probably more in behind-the-scenes applications in a business-to-business supply chain context than at the end consumer end.

Professor Kai Riemer: ...and helping people with disability. Probably the military is very keen on that but again probably more niche than broadly disruptive.

Chris Neff: The Cloud.

Professor Kai Riemer: It’s already here. When you open an app on your smartphone, there can be up to 100, 200 cloud services that are interacting to just make it possible for you to post to Instagram or something.

Chris Neff: Next generation genomics?

Professor Kai Riemer: Now this is...this is really fascinating. Probably not broadly understood by the public and I wouldn’t claim that I’m an expert but things like CRISPR or gene editing raise a lot of ethical questions like editing genes and embryos and designing babies...

Chris Neff: Mmm hmm.

Professor Kai Riemer: ...which is a distinct possibility now. But at the same time has huge applications in how we fight diseases that are based on gene mutations such as cancer so I think watch this space.

Chris Neff: Next generation energy storage devices.

Professor Kai Riemer: Ah! Yes, of course.

Chris Neff: Lithium ion batteries.

Professor Kai Riemer: I think really important if we want to be completely fossil fuel independent. And it’s a mix of things. It’s hydro-storage which we are already doing in the Snowy Mountains Scheme but it’s also storing energy in salt for example which you can heat up which will store energy as heat in which you can turn into electricity. Batteries that we’re seeing, batteries that you put in your home, batteries that you can build into large scale facilities. Yes, I think a very promising area and a very necessary area too.

Chris Neff: 3D printing.

Professor Kai Riemer: Interesting. Again, one of those things that were promised to change the world. Hasn’t done it yet but has huge applications in certain areas especially when it comes to building, creating bespoke implants in medical applications or prosthetics or cheap prosthetics in areas of the world where you don’t have access to advanced medical devices. But also rethinking the way in which we construct things at smaller scale industry such as you know...building a rocket engine...

Chris Neff: Mmm hmm.

Professor Kai Riemer: ...which you can now print from titanium. There’s a whole bunch of new ways of doing things. I don’t think it’s the thing that you put in your home to just print out stuff but behind the scenes and in a B2B context and in an industrial context it’s got quite significant applications.

Chris Neff: Well I saw that they just put one on the space station and they’ve created like an earth environment for it to print in...

Professor Kai Riemer: Mmm.

Chris Neff: ...and now that’s sort of transforming space travel because if you don’t have to worry about missing a part because you can print the part, then that creates a level of additional safety...

Professor Kai Riemer: Yep.

Chris Neff: ...and in shipping and when you need to send up to the space station and what not, it just sort of changes everything.

Professor Kai Riemer: Yeah so, I think we need to keep an eye on what these disruptions are doing. Quite often we say, ok that’s a disruption because that would make everything cheaper, cheaper, cheaper. But I think most disruptions they allow us to do things differently or do entirely new things that might incidentally come up with a service that is then cheaper or has a different pricing model such as in the music industry. And 3D printing is a technology that won’t do away with conventional mass manufacturing which it can do at scale and cheaper but it would allow us to manufacture and create things in context where that wasn’t possible.

So, think space station. If they have a problem up there and they need a part, they can create that part for themselves, right? Which could save lives.

Chris Neff: What should young people be doing who are listening to this podcast right now and are hearing us talk about digital disruptions, how do they prepare for a world of digital disruptions?

Professor Kai Riemer: Yeah so, we hear a lot about the uncertainty, ambiguity, volatility that we see in markets, so how do you prepare for a rapidly changing world that is full of technology that you know...threatens us with automation, artificial intelligence. It’s a good question.

I think people need to learn how to learn, right? And I think that’s what we do in universities is we do not necessarily just impart knowledge and then pretend that this is the knowledge, that‘s all you need right’ Go out there and you know everything and can do everything. I think what you do learn in a university is how to self-organise to then learn and do that as a life-long endeavour. I think that’s really important.

Sense making. I think thinking deeply and critically about technology. Critical not in terms of that you’re adverse to technology or anti-technology but that you understand how it changes our world and I think if I had my say, I would say that we hear a lot about kids could learn how to code and they should all become programmers. I think you know...do philosophy, engage with what makes us human and the role of technology in our daily life. So, be really strong on the human side of the human technology equation because there’s a lot of people who are working on the technologies and unless you really want to become a programmer or a coder or a techy, you’re better off understanding how technologies change the world rather than dabble in technology itself.

Chris Neff: I agree. I mean...there was a report that came out a little while ago that was talking about how the workforce was going to change in the future, in the next 30 years and how what we really need is compassion, empathy, critical analysis, the ability I think you said it really well, you know to learn about learning and to be able to have a set of skills that can be used for a bunch of different things. And I take all of that and I say yes, this is an endorsement of the BA Arts or of doing a BA in something because like you say philosophy because there are some grounded, critical thinking pieces that are broadly applicable for the rest of your life. It’s sort of training up your brain for skills training for the rest of your life.

Professor Kai Riemer: Absolutely. We see this in the business school as well. We really need a good balance between the technical skills and the people side of business because let’s face it, technology will be able to do more and more of the more standard routine straight forward algorithmic side of business whereas making sense of where business is going.

And ironically dealing with disruptions is not something that technology or AI is very good at because AI always has to be trained with data from the past and doing those disruptive shifts, that data’s basically invalidated. And so, it’s humans who bring about and create the world and can cope with making sense of how change happens. Whereas technology is pretty good at the routine stuff where you know...you need fast calculations of large amount of data. So, I think we’re coming to grips with the fact in which we have to rebalance the role between the technical and people side in business.

Chris Neff: I think that’s right because I know people are concerned about how AI is going to take over everything, it’s going to take our jobs but the point that you’re making is that AI doesn’t do well with digital disruptions so there are ways in which it’s not a threat in which, there are ways in which it’s really quite weak.

Professor Kai Riemer: Yes so, basically what we’re talking about these days is algorithms that can emulate something that appears intelligent such as you know...finding patterns in data or identifying you know...cats and pictures or cancer cells for that matter.

So, these algorithms they’re really good at learning to recognise patterns. So, if you have a self-driving car, it is able to see obstacles and you know...follow the road and recognise all these patterns because it has learned these patterns from hours and hours and millions and millions of training instances. But they’re always bound to the past also so when you have evolutionary change...so things change slowly in business, those algorithms would pick up those changes and adapt but when you have those disruptive shifts where you go from you know...you have modelled your business world in an AI and it understands how the music industry works but it’s all based on you know...shops and CDs and sales to customers, something like mp3 comes along and you have a shift to streaming and mobility and all of these kinds of things. It’s humans that do this and its humans that make sense of it because we live in this world.

Those algorithms they don’t live our lives. They have no purpose, right? All they can sense is the data that you feed them and they can understand that data because they are familiar with how the world works. Once the world changes and how it works changes, those algorithms are pretty much lost.

Chris Neff: Well, I think we’ve learned a lot about digital disruption. This has really been an eye-opening experience for me and I appreciate you coming along.

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Thank you so much for joining us on Open for Discussion Professor Kai Riemer.

Professor Kai Riemer: My pleasure, thank you.

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